Black Company's cost management and product costing procedures follow activity-based costing (ABC)principles.Activities have been identified and classified as being either value-added or nonvalue-added for each product.Which of the following activities,used in Black's production process,is nonvalue-added? (CPA adapted)
A)Drill press activity.
B)Heat treatment activity.
C)Design engineering activity.
D)Raw materials storage activity.

Question

Quizplus · Accepted Answer

Raw materials storage activity is a nonvalue-added activity as it does not add any value to the final product. It is necessary for production, but it does not directly contribute to the end product. A value-added activity would be something like the drill press activity or heat treatment activity which directly transforms the raw materials into the final product. The design engineering activity could be argued to be either value-added or nonvalue-added depending on whether it directly contributes to the customer's perceived value of the product.

Black Company's Cost Management and Product Costing Procedures Follow Activity-Based